Border Tax Will Raise Prices on Daily Purchases

The Columbus DispatchMarch 13, 2017by Luis M. Alcalde

Since the election, the president and Congress have focused
on tax reform as a means to "Make America Great Again."
Unfortunately, one idea being proposed, the border adjustment tax
("BAT"), will only "Make America More Expensive."

The idea behind the BAT is to impose a tax on imports to the
U.S. while granting a credit to U.S. exporters. The BAT was initially proposed
as a means to increase employment in domestic manufacturing by making imports
more expensive through taxation in hopes of encouraging domestic production and
increasing jobs in manufacturing. Additionally, as the argument goes, export
tax credits would further spur domestic production because of the lower tax
burden. Some economists also claim that implementing the BAT will lead to a
higher-valued dollar, thus neutralizing the import tax because imports will be
cheaper when purchased with the pricier dollars.

The goal of increasing domestic manufacturing employment is
laudable. However, the likelihood of increasing employment in domestic
manufacturing to the levels proponents use to justify the BAT frankly is low.
Rather than hiring new employees, many businesses are opting to use automation
as a means to increase efficiency. Studies show that since the end of the Great
Recession of 2008, the U.S. is manufacturing more than ever with fewer workers.
Homegrown automation, robotics, 3D printers and artificial intelligence, not
imports, are the greatest threats to U.S. manufacturing jobs.

At the same time, a large portion of our economy is directly
tied to imported equipment, goods and services. The U.S. imports around $2.5
trillion worth of goods yearly, including food, machinery and equipment, oil
and petroleum products, computers and electronics, cars and trucks,
telecommunications equipment, pharmaceuticals, and consumer goods such as
clothing, shoes, cellphones, televisions and more. Many U.S.-based
manufacturers rely upon imported equipment and raw materials, and many U.S.
jobs are tied to imported products, as well — from dock workers and fork-lift
operators, to truckers, retail workers and supporting service-sector jobs. The
BAT could place at risk many good-paying American jobs.

The BAT simply will increase the price that Americans pay
for all of these goods while doing little to nothing for employment in domestic
manufacturing. In reality it would essentially function as a $1 trillion
national sales tax, driving up the prices of everyday necessities. Estimates
indicate that the BAT could cost the average family $1,700 per year. There is
no other way to say it: This is a massive tax hike on American consumers.

Proponents also claim that passing the BAT is the only way
to fill the void left by income-tax cuts for corporations and individuals. This
is a flawed strategy meant to replace lost income-tax revenues with what is essentially
a regressive tax on consumption. Corporations and the highest income earners
would benefit the most from the lower income-tax rates. Meanwhile, the BAT
would be paid by American consumers, affecting low- and middle-class families
to a significant degree.

Moreover, the idea that the BAT will lead to a higher-valued
dollar relative to other currencies is not a given. Exchange rates are affected
by a number of complex factors, including relative rates of inflation,
differences in interest rates, trade balances, public governmental debt, trade
terms, political stability, economic performance and psychological factors. The
president proposes large increases in spending for the military, domestic
infrastructure and other Homeland Security programs while safeguarding Social
Security, Medicare and other programs. The likelihood of deficit spending and
inflation is high. The likelihood of international political instability and
trade wars is high.

Predicting how well the dollar or the U.S. economy will do is
a crapshoot. However, one thing is certain, the BAT will immediately raise the
price of practically everything Americans buy every day without giving
Americans any corresponding pay raise.

Hopefully Ohio's congressional representatives will reject
the BAT and protect Ohio's working and middle classes from a massive tax on
consumption that will do little to increase domestic manufacturing or to lessen
the tax burden on working people.